Mumbai: Multiple virtual protest banners from retail traders, who must now pony up more cash to do business on the bourses, greeted D-Street bulls and bears on a day new peak margin rules took effect, although the absence of several individual participants didn’t seem to materially impact trading volumes.
Under the peak margin rules, traders are required to give 100% margin upfront for their trades.
Some angry investors ran campaigns with hashtags #SEBIAgainstRetailers, #notradingday, #SEBIbringMarginBackon on Twitter, while a campaign not to trade on Wednesday was also made viral through the WhatsApp messenger.
To reduce risks in the stock market due to leveraged positions, the regulator has gradually done away with the practice of brokers providing intraday exposure for their traders.
“The dreaded day for brokers, exchanges, intraday traders, is here,” tweeted Nithin Kamath, CEO, Zerodha, the country’s leading discount brokerage.
Changes in margin norms have ruffled traders as they will now have to deploy more cash as margin. Until now, the upfront margin required was 75% of the total exposure.
“Most likely the minimum margin required will have to be higher even than the SPAN+Exposure for F&O positions because margins for F&O can go up intraday if there’s a sudden spike in volatility,” Kamath said.
Brokers said intraday trading is likely to be impacted the most, and overall volumes will decline gradually.
“We expect the new peak margin to impact trading volumes, which will witness a gradual decline in due course of time,” said KK Maheshwari, president, Association of National Exchanges of Members of India (ANMI). “Also, there will be a shift in volume to options from the futures segment, as market participants will try to extract better leverage.”
“There is also a strong likelihood that long risk trade will get converted to higher risk trade with more profound stop-loss,” he added.
Exchanges will calculate such additional margin in different pockets of time during the day and the highest will be considered as peak margin. Traders taking intra-day positions will be the most affected since margins were calculated on an end-of-the-day basis in the earlier system.
“Intraday risk is much less compared to overnight risk, but it has not been considered,” said Vijay Singhania, Chairman, TradeSmart. “This mandatory intraday margin has not been introduced in any developed country so far.”